The Magic of Compound Interest

Understanding Compound Interest

Albert Einstein allegedly called compound interest "the eighth wonder of the world." Whether he said it or not, the math is remarkable.

**Simple interest:** You earn interest only on your original investment

**Compound interest:** You earn interest on your interest

Consider two investors who each invest $200/month at 7% annual return:

Investor A (starts at 25, stops at 35):

Invests for 10 years: $24,000 total

Balance at 65: $472,000

Investor B (starts at 35, invests until 65):

Invests for 30 years: $72,000 total

Balance at 65: $227,000

Investor A contributed less but ended up with more—that's compound interest at work.

A quick way to estimate doubling time:

72 ÷ interest rate = years to double

At 7% returns: 72 ÷ 7 = ~10 years to double

At 10% returns: 72 ÷ 10 = ~7 years to double

**Start early:** Time is your biggest advantage

**Stay consistent:** Regular contributions matter more than timing

**Be patient:** Wealth builds slowly, then suddenly

**Let it grow:** Avoid withdrawing early

**Reinvest dividends:** Keep the compounding going